A flawed metric: Why better alternatives failed to replace GDP

For 90 years, countries have faced the same dilemma with Gross Domestic Product (GDP) that businesses face with quarterly earnings. Created in 1934 as an emergency tool during the Great Depression, GDP was economist Simon Kuznets' answer to a specific problem: helping the US government understand economic activity for taxation and investment decisions during the crisis. Kuznets himself warned against using it as a welfare measure, famously noting that "the welfare of a nation can scarcely be inferred from a measure of national income." His warnings went unheeded.

The transformation of GDP from a crisis tool to a global obsession occurred gradually, then suddenly. After the war, the metric proved useful for managing reconstruction efforts. Then came the pivotal moment: in 1953, the United Nations introduced the System of National Accounts, standardising GDP as the principal indicator of national income worldwide. What began as an American experiment became the global language of economic success – and before long, of progress itself. The number of countries measuring GDP grew exponentially – by 2015, virtually every nation on Earth used it as its primary indicator of progress.

Since 1970, economists, statisticians, natural scientists and policymakers have recognised both the limitations of GDP and the inadequacy of using it to measure progress and have developed hundreds of alternative measures attempting to capture what GDP misses. The Genuine Progress Indicator, for example, adjusts for environmental damage and inequality. Bhutan's Gross National Happiness prioritises citizen wellbeing. The UN's Human Development Index incorporates education and health. Yet GDP remains king, its dominance seemingly unshakeable, despite universal acknowledgement of its flaws.

The fragmentation trap undermining progress measurement

A new study published in Ecological Economics by Juan Pablo Ríos-Ocampo from the University of Strathclyde in Glasgow, and Giovanni Cunico and Professor Shayne Gary from UNSW Business School, reveals why GDP has endured, despite mounting criticism. The research uncovers a paradox: efforts to replace GDP actually strengthened its dominance.

The researchers analysed alternative progress measures developed between 1970 and 2020, employing causal mapping techniques to synthesise literature and time-series data to reveal underlying trends in how the measurement of societal progress has evolved.

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The findings reveal how good intentions backfired. The beyond-GDP movement expected that creating better measures would naturally lead to adoption, what researcher Anders Hayden termed the "indicators fantasy." Instead, the proliferation created chaos. By 2020, the researchers documented 232 distinct alternatives, with 77 measures introduced between the 2009 Stiglitz report and the 2015 Sustainable Development Goals agreement.

“The catalyst for this study was the enormous gap between the scale of the beyond-GDP movement – in terms of the large number of proposed indicators, their sophistication, and the many promotional events around them – and the almost negligible impact these indicators have had on policy outcomes or broader societal discourse over multiple decades,” Prof. Gary explained.

The network effects sustaining GDP's dominance

The research reveals how GDP's dominance became self-reinforcing through multiple feedback mechanisms. The authors identify the "conforming with GDP standard" loop – as more countries adopted GDP, it became increasingly attractive to others who needed comparable metrics for trade, investment and international relations. This network effect mirrors how dominant technologies maintain market position even when superior alternatives exist.

The study documents attempts to implement alternatives, noting initiatives at international levels (United Nations SDGs, OECD Better Life Index), national levels (including programmes in Canada, New Zealand and Australia), and subnational levels (such as Hawaii, Alberta and Maryland). However, these attempts have had limited scope and success. Some implementations were discontinued, while others remained peripheral to the actual policymaking process. GDP maintained its position as the primary measure worldwide.

The researchers found that fragmentation extended beyond mere numbers. Alternative measures differed across typologies, ontological foundations, levels of analysis, types of institutions promoting them, and calculation intervals. These differences increased validation and comparison difficulties while decreasing data availability and reliability.

How complexity became the enemy of change

This multiplication of alternative measures created what the researchers identify as the "beyond GDP fragmentation" reinforcing loop. As pressure mounted to find better progress measures, more alternatives emerged. But rather than converging on a solution, the multiplying options decreased consensus. Policymakers and citizens faced a bewildering array of choices, each with different methodologies, data requirements and philosophical foundations.

The authors cited other research, noting that "those institutions and organisations that are working on better measures of progress waste time and resources arguing over the minutiae of methodology and data rather than presenting a united front on the pressing need for better measures."

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The problem of complexity has compounded over time. GDP uses a single number everyone understands. The alternatives incorporated anywhere from four to 472 separate indicators. The researchers found that from 1990 onwards, the average number of indicators per measure steadily increased as developers tried to differentiate their approach from existing options. This created what the study terms the "differentiation by more indicators" reinforcing loop – a vicious cycle in which complexity breeds more complexity.

“In practice, continued reliance on GDP as the primary measure of societal progress leads decision makers at all levels (for example, individual citizens, company executives, and government policymakers) to prioritise economic outcomes above all else,” said Prof. Gary.

He gave the example of Western Sydney’s Bradfield City Master Plan, in which urban planners within the Development Authority proposed a large pool in the city centre that would have provided a place for community members (especially children) to socialise, exercise and learn lifelong swimming skills.

“Unlike much of the population in the rest of Greater Sydney, citizens living in Western Sydney do not have easy access to a beach,” said Prof. Gary. “Ultimately, the business case for the pool did not demonstrate a strong enough positive economic contribution to the area and was dropped from the plans. If decision-makers were using alternative measures of progress that explicitly included social and environmental dimensions, the pool may have been included in the master plan.”

Breaking free from measurement paralysis

The implications for business leaders and policymakers emerge clearly from the research. Continued proliferation of alternatives will "likely do more harm than good", the authors conclude. Instead, they advocate for convergence around one or a small set of measures. This requires the beyond-GDP community to stop creating new metrics and start building consensus around existing ones.

The study highlights how well-intentioned efforts unintentionally activated feedback loops that limited transition. Other researchers have noted that what is needed, instead, is "societal therapy" – consciously breaking addiction to GDP growth as the primary success metric. The upcoming 2030 revision of the System of National Accounts presents, according to the authors, a potential opportunity for institutionalising an alternative alongside GDP.

“Convergence on one or a small subset of alternative measures of progress could help society transition from economic growth as the primary goal, to achieving a sustainable civilisation as the main goal for policymakers and citizens worldwide,” said Prof. Gary.

For organisations committed to stakeholder capitalism and sustainable business models, the research offers practical direction. Rather than developing proprietary metrics, companies should align with emerging standards showing signs of convergence. The path forward requires accepting that the perfect measure doesn't exist. A good-enough alternative, widely adopted, beats hundreds of perfect measures that fragment attention and resources. The challenge isn't creating better measures – we already have 232 options. The challenge is choosing one and committing to its adoption at scale.